With re­forms, global econ­omy has room to grow

The Jakarta Post - - BUSINESS - Enda Cur­ran and Andrew Mayeda

The world econ­omy is en­joy­ing a re­cov­ery that spans three-quar­ters of global out­put. Trade vol­umes have re­bounded and unem­ploy­ment is falling. But the best may be still to come.

That’s the mes­sage from fi­nance min­is­ters and cen­tral bankers gath­ered in Wash­ing­ton on Thurs­day for the start of an­nual meet­ings of the World Bank (WB) and In­ter­na­tional Mon­e­tary Fund (IMF), where they ex­pressed an in­creas­ingly up­beat out­look for their economies.

“It’s go­ing to get bet­ter,” IMF man­ag­ing direc­tor Chris­tine La­garde said on a panel de­bate mod­er­ated by CNN an­chor Richard Quest. She spoke two days af­ter the fund lifted its global growth out­look on im­proved fore­casts for the world’s big­gest economies.

Un­like last year when emerg­ing mar­kets drove gains, the cur­rent up­swing is more bal­anced, she said. “It is broader-based, it is more solid and it should get bet­ter. But it needs to get sus­tain­able and ben­e­fit all.”

Of­fi­cials from around the globe largely shared her op­ti­mism.

“I am pleased to note that there have been signs lately that a sus­tain­able global re­cov­ery may fi­nally be ma­te­ri­al­iz­ing,” United States Fed­eral Re­serve gover­nor Jerome Pow­ell, who is a po­ten­tial can­di­date to run the cen­tral bank when Chair Janet Yellen’s term ends in Fe­bru­ary, said in Wash­ing­ton. “This is cer­tainly good news, al­though sig­nif­i­cant risks and un­cer­tain­ties re­main.”

Pow­ell’s words of cau­tion echoed warn­ings from other pol­icy mak­ers through­out the day that painful re­forms are still needed to defuse po­lit­i­cal ten­sions and en­sure the re­cov­ery lasts.

Some of the world’s lead­ing cen­tral bank chiefs said more work needs to be done. Bank of Ja­pan gover­nor Haruhiko Kuroda told re­porters he will keep up a mas­sive stim­u­lus pro­gram to hit a 2 per­cent in­fla­tion goal, and Euro­pean Cen­tral Bank pres­i­dent Mario Draghi said that al­though there are some signs that wages are fi­nally in­creas­ing, “we’re still not there.”

There are also con­cerns that not ev­ery­one is shar­ing in the global up­swing. “It is not in­clu­sive enough,” In­done­sia’s Fi­nance Min­is­ter Sri Mulyani In­drawati said.

Cit­ing the Bri­tish poet Percy Bysshe Shel­ley, La­garde said there is a “de­gree of har­mony” in global growth, be­fore cau­tion­ing that a lack of eco­nomic re­forms amid grow­ing tech­no­log­i­cal and other dis­rup­tions are lim­it­ing as­pi­ra­tions. The fund in meet­ings this week is push­ing poli­cies that in­clude in­vest­ment in ed­u­ca­tion, a strength­en­ing of safety nets and in­fra­struc­ture spend­ing.

“Our goal is turn­ing that har­mony we see into a sea­son of ac­tion,” she told re­porters ear­lier Thurs­day in Wash­ing­ton. “The re­cov­ery is not com­plete.”

Threats in­clude the risk of volatile cap­i­tal mar­kets and tighter fi­nan­cial con­di­tions with con­se­quences for spillover around the globe. La­garde ad­vo­cated against pro­tec­tion­ism that could dis­rupt a re­vival in global com­merce.

“This pickup in trade that we see is good for growth, and we need to se­cure it and make sure it con­tin­ues to be so,” she said. “Try­ing to re­duce trade would not be help­ful for that roof we want to fix.”

While pol­icy mak­ers pushed back against calls for higher tar­iffs or pro­tec­tion­ism, they also said do­mes­tic poli­cies needs to de­liver ben­e­fits to those who feel left out of the global re­cov­ery.

“We can’t di­vorce our do­mes­tic pol­icy from our goal of hav­ing a more open and trans­par­ent trad­ing sys­tem,” said Cana­dian Fi­nance Min­is­ter Wil­liam Morneau, whose coun­try is en­gaged in talks this week to rene­go­ti­ate the North Amer­i­can Free Trade Agree­ment with the US and Mex­ico. “If peo­ple be­lieve that trade is not go­ing to nec­es­sar­ily ad­van­tage them, then why are they go­ing to buy into it?”

Of­fi­cials up­beat about out­look for their economies Risk of volatile cap­i­tal mar­kets, tighter fi­nan­cial con­di­tions threats to global re­cov­ery

Reuters/Yuri Gri­pas

High-level talk: In­ter­na­tional Mon­e­tary Fund (IMF) man­ag­ing direc­tor Chris­tine La­garde ar­rives at open­ing news con­fer­ence as part of the IMF/World Bank an­nual meet­ings in Wash­ing­ton, United States, on Thurs­day. La­garde says on a panel de­bate on the side­lines of the meet­ings that the out­look of the world econ­omy will im­prove, a view shared by of­fi­cials from some economies.

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